Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278362 
Year of Publication: 
2023
Series/Report no.: 
ECB Working Paper No. 2786
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Bayesian decisions are observationally identical to decisions with judgment. Decisions with judgment test whether a judgmental decision is optimal and, in case of rejection, move to the closest boundary of the confidence interval, for a given confidence level. The resulting decisions condition on sample realizations, which are used to construct the confidence interval itself. Bayesian decisions condition on sample realizations twice, with the tested hypothesis and with the choice of the confidence level. The second conditioning reveals that Bayesian decision makers have an ex ante confidence level equal to one, which is equivalent to assuming an uncertainty neutral behavior. Robust Bayesian decisions are characterized by an ex ante confidence level strictly lower than one and are therefore uncertainty averse.
Subjects: 
Statistical Decision Theory
Hypothesis Testing
Confidence Intervals
Ambiguity Aversion
JEL: 
C1
C11
C12
C13
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5982-7
Document Type: 
Working Paper

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